Sequoia Capital, an American venture capital behemoth, has reportedly decided to relocate funds, that it had originally kept for digital assets-related projects, reducing its cryptocurrency fund by a whopping 65%.
Sequoia to Concentrate on Early Start-Ups
According to a new WSJ report, Sequoia has slashed its cryptocurrency fund from $585 million to a meager $200 million, amid a liquidity crunch and a pivot away toward smaller crypto players. It seems the decision comes in the thick of the prolonged crypto winter and a broad downturn for private technology companies.
Sequoia Capital curbed crypto investments by a hefty 65% 🐻, opting for a nurturing stance on startups. Not a volatile market apathy, but strategic cognition, folks! 🌱💡 #CryptoInvestments $BTChttps://t.co/hfsAAd8jeV pic.twitter.com/8JvtyShg0n
— Chain Review (@Chain_Review) July 27, 2023
It is likely that a liquidity crunch for some limited partners — the investors who provide capital to venture capitalists to invest on their behalf – has also fuelled the decision. As per the report, the reduction in the size of the funds, was communicated to the firm’s limited partners earlier this year. In the face of the current market situation, the tech-centric venture capital firm is looking to take better financial decisions to avoid hefty losses.
Instead of investing in already established crypto-focused companies, Sequoia could be redirecting its focus on helping new projects and backing early-stage startups take off with its remaining crypto fund. However, the company has not officially announced the reduction in its crypto-centric fund yet. In a statement to the Financial Times, Sequoia said,
“We made these changes to sharpen our focus on seed-stage opportunities and to provide liquidity to our limited partners.”
Market Slump Batters Crypto Focused Companies
The ongoing market slump has not only impacted Sequoia but numerous other companies in the digital assets space. Promising crypto projects like the FTX exchange as well as Terra failed due to mismanagement of funds and liquidity crunch, draining billions out of the crypto market.
Additionally, other events such as back-to-back interest rate hikes in the United States to tame crippling inflation, regulatory woes in the US, and other macro headwinds have fuelled the downturn. Recently, the global securities marketplace Nasdaq decided to scrap its plans for a cryptocurrency custody service due to the changing business and regulatory landscape in the US.
Nasdaq halts plans for crypto custody service https://t.co/2e8sI2ZVvZ
— Financial Times (@FT) July 19, 2023
Will Crypto Rebound?
Earlier this year U.S. payment giants Visa and Mastercard also decided to freeze their respective plans to forge new partnerships with crypto firms. Other crypto companies are resorting to cost-cutting measures including, announcing mass layoffs, freezing withdrawals, and trying to stem losses.
While the ongoing decline may seem daunting, the crypto industry has previously encountered and surmounted similar challenges. Despite its ups and downs, the possibility of crypto rebounding and reaching new heights is certain as the decentralized system of digital assets makes it faster, cheaper, and more secure to transfer money. As quoted by Vitalik Buterin, the co-creator of Ethereum (ETH),
“If crypto succeeds, it’s not because it empowers better people. It’s because it empowers better institutions.”
